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In yesterday’s post forecasting smartphone penetration I neglected to mention the exact subset of the US population being sampled. The analysis is based on comScore’s sampling which covers only those devices which are the “primary phone” for users over 13 years old and not provided by an employer.

In other words, the population being sampled is not meant to identify how many phones will be in use but rather what is the primary phone for those non-children who choose their own phones.

So the measurement that can be obtained from the S curve analysis is a subset of all phone users and will not identify exactly how many phones will be in use. Given that, this is what that subset looks like:

I drew a line showing the census data (and projection) for the US population and estimated what percent of that population might be older than 13 years[1]

Of the remaining population, I expect smartphones will be used by nearly all by end of 2020.

That means about 270 million users. It also means that about 125 million more than are using smartphones today. Note also that a significant number of those under 13 will also use smartphones and that the metric is “primary phone” and insofar as there are more than one phone for some users they are a multiplicative factor. Finally this measure does not account for company assigned devices.

So although this measures how many users will use smartphones, the total number of such phones in use is likely to be significantly higher.

Finally, when considering the market’s potential size it’s important to have an accurate estimate of how frequently these phones are replaced. So, for instance, if we guess that 300 million smartphones will be in use and that they get replaced every 2 years then it follows that the US market for smartphones would be about 150 million units per year in 2020.

Your data visualization made me instantly think of those millions of poor underserved young’ins from 0-13. Will a whole new segment of wearable smartphones like the Filip (http://bit.ly/ATTFilip) emerge to serve this group and their neurotic parents?

Walt French

I’m ALSO thinking that a good fraction of kids will have them from elementary school. Yes, especially with lower prices and if security tech improves so that a phone is near-useless once reported stolen, it’s a likely item. Anecdotally, at the K-8 school my wife is involved with, a fair fraction already.

These should offset the over-70 types who find them difficult to work or not worth the expense given limited mobility. And those too many people whose income makes it a challenge. But still, there are fewer 10-14 kids (the Census brackets) than 70+ers.

Because of US income disparities, I still remain pretty skeptical about the eventual penetration shown.

Glaurung-Quena

“Because of US income disparities, I still remain pretty skeptical about the eventual penetration shown.”

Same here. Sure, if feature phones cease to be made available, everyone will be forced to buy a smartphone… but that metric becomes a lot less meaningful if a significant fraction of phone owners never buy a data plan.

http://www.asymco.com Horace Dediu

I wonder how income disparity affected the adoption of radio, TV, color TV, electricity, broadband and automobiles in the US? Weren’t they all luxuries once? They all followed logistic curves at some point.

http://tschopp.net/ Ted Tschopp

Horace, Yes. I work for one of the electrical company in California, and there is a lot of similarities in this market to the historical changes we have seen in our companies past.

Walt French

Yes, the original items you cite were all luxuries that became widely popular in the US. So I looked for some context.

A quick Google scan found a snip from “Regulating the Future: Broadcasting Technology and Governmental Control” (2001)

Just five consumer electronics technologies have reached or exceeded 85 percent penetration: radios, monochrome TVs, color TVs, VCRs, and telephones. In 1995 VCRs became the quickest technology to reach 85 percent—after nearly 20 years on the market.

Another hit was for an ASME research paper on “Color Television Market Penetration Dynamics.” I didn’t spring for the full paper, but the abstract notes, “A mathematical model describing the dynamic relationship between value, cost, and market penetration is formulated and tested against 1954 to 1971 color television, historical data.” (My emphasis)

I’m not skilled in these analyses, but believe that these factoids and modeling efforts underscore the fact that adoption curves are affected by cost and value versus competing technologies, and that many important historical technologies blossom but fail to get past 85%.

Meanwhile, the income distribution in the US has become steadily more unequal. As measured by the Wikipedia’s page on the Gini coefficient, Americans’ incomes were most equal in the late 60s and steadily became noticeably (not radically) less so since. The 50s thru the 70s, when the American Dream was most widely accessible, were of course the heydays of several of the widespread phenomena you noted. Several economists have drawn a link but I think they’re tenuous—but strongly suggestive.

All the above should lead us to be a bit concerned about nice smooth curves heading to 100% of the target populace. Fortunately for most purposes, a few percentage points of difference, five years out, is of small concern. But just as data today suggest Macs have finally slipped in their previous incessant gain of desktop market share, there may be bumps or even stalls as smartphone penetration continues on its longer-term trend.

http://tschopp.net/ Ted Tschopp

I should also add that in California we are seeing Low Income individuals adopt Smart Phones instead of laptops and computers in order to do their work online. This means that these devices are truly disrupting the (laptop / desktop) + (DLS / Cable) markets.

neutrino23

Not that I know the answer, but it is probably non-obvious how the less affluent choose phones. I was reading that locally some homeless people have iPhones and that having a place to charge was important. It might seem like a luxury but for those interviewed it helps them find part time jobs, city services, shelter services and such. The iPhone also helps them keep in touch with friends and relatives. All of these are more difficult when you don’t have a permanent address.

Chaka10

What you’ve described is a lot like what’s happening in China and India, with disproportionate smartphone adoption relative to mobile broadband penetration.

mieswall

Also skeptical. On the other hand, experience in low income countries is that there are places where mobile adoption well exceeds 100%. Because many people don’t have data plans, and so sometimes they are carrying two, even three phones, for their relatives to call them at lower costs for each main carrier. As absurd as it sounds, it is true. I’ve seen this many times.

http://tschopp.net/ Ted Tschopp

An interesting flip will occur when the carriers start to phase out 3G network coverage as a standard and the standard moves to 4G / LTE. With 4G networks, its all data plans, and the voice is done via VOIP. This means that the carriers will no longer need to differentiate the services due to physics but will do so only to arbitrage the costs of running the network.

A lot of lower-income folks now have smartphones instead of PCs and home internet connections.

bernie1001

both posts are very interesting,
my guess is that by 2020 the replacement cycle could increase towards 3yrs based on whats seen in the pc-business, ie good enough phones, no longer “hot” technology, late adopters and lower income users less willing to spend on replacements,
not sure bundling of handset w 24 month contract will last to 2020,
how many spend on updating to “hot & new pc’s” nowadays?

ankushnarula

Thanks for the update Horace – most enlightening. I’m curious what percentage of this is the pre-paid market vs 2-year contract market – and also if you have any thoughts about the early upgrade programs how they will affect the numbers. Is the pre-paid market significant in the U.S.? If so, what’s the average upgrade frequency? And what is the pre-paid to contract (and vice-versa) conversion rate? Thanks!

Glaurung-Quena

I’d expect that the prepaid market will tend to use a phone until it dies rather than replace it every 2-3 years, but I could be wrong.

obarthelemy

There’s a 3rd category: no-subsidy post-paid. That’s an option with T-Mobile in the US, and all carriers in France. I don’t know about other countries.

I’m not sure what the impact on replacement is: on the one hand, it makes the cost of the phone very visible; on the other hand, since it’s usually cheaper, it frees up money to invest in the hardware, and those unlocked phones are easy to resell. Also, customer savvy enough to go for those cheaper options might be more tech-oriented than the rest ?

Glaurung-Quena

” So, for instance, if we guess that 300 million smartphones will be in
use and that they get replaced every 2 years then it follows that the US
market for smartphones would be about 150 million units per year in
2020.”

No freaking way. If everyone is buying new phones every two years, what on earth is happening to all those 2 year old phones, a great many of which will still be perfectly functional?

In short, you’re ignoring the hand-me-down market, in which those who have the money to get a new phone every time their contract comes up for renewal turn around and sell/give away their old phone.

http://www.asymco.com Horace Dediu

I’m ignoring many things.

obarthelemy

My first smartphone (an HTC HD2) is still being used by my brother-in-law, Windows 6.1 and all; my second smartphone (Samsung Galaxy Note v1) is still being used by a cousin. My sister-in-law is still on her original iPhone (4 I think)… Apart from my brother’s WinPhone monstrosity that got in the wash, no smartphone that I know of around me has been junked yet. I discounted my Motorola E325, but that was junk to start with, I woudln’t pass it on to my worst enemy :-p

Chaka10

It is perfectly obvious that Android is its own S curve, and that it is at the top, plateau end of it already. Curious if the curve then stays flat, or instead turns into a bell curve instead.

Vicious Cur

Or a cliff dive. What happens to Android when adoption rates drop and Google loses interest in maintaining it?

rational2

Why would it lose interest in maintaining it, when it is doing its job of preventing Microsoft from occupying the non-Apple spectrum? Also, Google gets to deploy its services, so it will be glad to pay a small price of maintaining Android.

Jessica Darko

Google seems to have already lost interest in it, they haven’t announced anything significant in many years (certainly nothing new, mostly me-too copies of Apple stuff.) They didn’t even do a major update of the OS this year, while apple does a major release every year.

charly

They make money out of the store. They also need to fear being forked if they stop maintaining Android

http://tschopp.net/ Ted Tschopp

If Google loses interest in maintaining it, I believe someone else will. At this point it looks like that someone else would be Samsung, but I suspect many of the Asian manufacturers would love to. Heck even Amazon would maintain it if Google pushed it out the lifeboat.

Android exists to get people to use Google Services so Google can create a more fundamental understanding of who people are in the aggregate

They don’t want to understand you personally or atomically, but they want to understand you out and about the world you live in. You are a different person at different times in your day. They want to understand that and anticipate that and then quantify that in order to sell the opportunity to market to you to their customers.

At some point the service and experience offerings from Google will be good enough to sell by themselves and people will pay for them with money instead of attention. When this happens Google will have transitioned from an Advertising/Services company to an experience company. They of course will still have the product and services offerings, but once they get here, they will be competing directly with Apple, which is already an experiences company.

Chaka10

Further to my earlier post on how the Android curve is its own S curve, and shows its adoption has plateaued. The color-coded breakdown of the main adoption curve nicely illustrates that it’s consists of constituent components that have their own curve characteristics. This helpfully ties back to a point I made earlier — it’s my strong supposition that adoption happens at different stages for different segments of the market, and moves from high to mid and then lower ends. Or put differently, if the curve shown were broken down my market segment (rather than platform), I believe it would show the high-end of the market maturing sooner than the low end (ie, shifted to the left).

That obviously has high relevance for vendor strategy. However, and I’ve been pounding the table on this for a while, for Apple, a maturing high-end smartphone market (in the sense of dwindling first time buyers), doesn’t mean no demand — rather it means increasingly demand will be driven by replacement buyers. Apple will benefit from (1) reliable iPhone replacement demand, (2) positive churn from Android — plenty of high-end Android to convert, and (3) EMs will continue to get wealthier and increase mobile-broadband adoption (4G is just now launching in China, …).

obarthelemy

It’s very contextual. I’m curious about T-Mobile’s sales: are they still skewed high-end in general, and iPhone in particular, for the portion that is “uncarrier” ? Because if that model spreads (as it probably will), then the whole market dynamics is impacted.
Other mature markets show that prices (including subsidies and price transparency) have a great impact on sales. The US are not the most mature market, neither the most price-competitive. other markets show Android thriving when prices matter, even (even more ?) when the customers are sophisticated.

this makes sense as Android has an extremely high number of low cost phones. I think you’ll agree when “prices matter” people aren’t buying iPhones OR Galaxy devices. This is shown clearly on this site by worldwide sales for those two series.

poke

I think the idea that the iPhone is hired to sell data services nicely fits what we’re seeing with Android here. Android was also hired to sell data services, but using a different strategy. Android was used to sell data plans using cheap/free phones and special offers. But now the market is maturing, that strategy is becoming less important. Once you’re on a data plan, the operators have less reason to care what phone you’re using. Android was pushed aggressively to get people to upgrade from feature phones, but the operators aren’t going to push Android on iPhone users. We’re seeing the “Android strategy” plateau here.

Now the iPhone is gaining on Android. I expect this to continue and for the same trend to play out in other markets as they mature. The late majority adopts based on what other people are doing. This is where network effects, platform strength and brand become extremely important. It’s a great time to introduce a $99 iPhone in a variety of fun colours.

obarthelemy

I think it’s the other way around: contracts are getting cheaper if not fading away, which makes the phones’ cost all the more apparent. People didn’t think twice about getting a free $700 phone with their $100/mo contract. Now they increasingly have to make the conscious decision to pay an extra $35/mo for their phone, on top of a $40 contract. That favours cheaper, reasonable, phones

Kizedek

That may well be. But the question remains, why the apparent gain of iPhone in the US? at a point when people have to consciously consider price more?

Perhaps it has to do with recognizing the value that the iPhone offers as a pocket computer as people get more discerning (those later adopters), and the initial enthusiasm for Android waning? …just as many have been saying all along.

charly

But this is only true for the US. Rest of the world apps are Android first.

Jessica Darko

Not according to app developers, or my experience.

charly

Are you from the US because my experience is that it is Android first

http://tschopp.net/ Ted Tschopp

@c1056ed14665ca60c8853339569a6ed7:disqus
Can I get a citation for that statement.

charly

Outside of the US people are using Android. There is also the cost effect. Late adopters are much more price conscious . They will buy the $200 android phone and not the $700 iPhone

ps. I assume $99 with plan. A real $99 would be great

Jessica Darko

It’s ok to make arguments about price, but it’s not ok to just assert that “people are using android” since we have no evidence that this is significant numbers of people.

Jessica Darko

If android is hired to sell data services, and if these made up android numbers were accurate, then android is a total failure in its job since iPhone users out pace android users in web usage stats– one of the few objectively measurable marketshare data sources for androids “success”.

charly

Why would you expect a replacement every 2 years? Especially if the innovation rate for phones slows down.

http://tschopp.net/ Ted Tschopp

My guess is that as soon as the rate of innovation slows to make replacement every 2 years an artifact of the past, the phone manufacturers will start focusing on style, fashion, and use materials in the external parts of the phone that will have a hard time lasting longer than two years.

This will make a two year old phone look old fashioned and beat up; thus putting a good justification in most people’s minds to upgrade.

This will really be true if Phones are considered to be the first part of the wearable computing platforms. People will start treating phones like clothing and most people get new cloths each year.

Neil

Because if you don’t buy a new subsidized smartphone, you pay most of the cost of a new smartphone in your monthly bill anyway. The iPhone that you buy for $199 costs the carrier $650. Do the math. Over two years, you pay back the carrier $451. If you don’t upgrade, your monthly bill doesn’t decrease so you pay another $451 over the next two years even if you keep using the same iPhone. The carriers love customers who don’t realize this.